Don’t forget gold as an investment - February 18, 2018

The last months were all about record breaking stock markets and their correction that had just started. Cryptocurrencies were also in the news a lot. People cared about oil and renewable energy as well. But there was one instrument which was almost forgotten: gold. It’s good to remember it, since it still has enormous strengths and possibilities.

Sometimes people tend to forget one of the oldest investment: precious metals and among them, gold. It’s understandable, since many other things happened on the markets. But gold is connected to all of them, so it’s good to keep an eye on it, especially in time of changes in the market.

What happened lately?

Spotlight moved away from gold as investors were busy with roaring stock markets. In the last 8 years there was a bullish market, and several US based indices broke their own records. While stocks were flying record high, interest rates were (and still are) record low. This lead investors to focus on instruments with better returns. Some started to take more and more risks to reach those returns, even investing in super volatile instruments like cryptocurrencies.

But this lead to an overpriced market environment, which wasn’t sustainable on the long run. Cryptocurrencies’ correction started at the end of last year, and Bitcoin lost more than half of its value. Just last week the correction started on the stock markets, which we have waited for a while now, and prices fell. Not at an alarming rate, mind you, but still, prices were and are falling. Some analysts believe markets are turning back to their normal behaviours.

Why focus on gold now?

Although a market environment like this may hold great chances to investors, it’s also a good idea to focus on gold. Gold has a special attribute: it keeps its value. True, gold’s price can and does change, and it doesn’t pay dividends like stocks. On the long term, however, it has the capability to “pay” a return at the rate of inflation. To put it another way, it keeps its value even if national currencies (Euro, US Dollar, Rouble or any other) lose theirs. What’s more, gold has no issuer, so there’s no one behind it to go bankrupt ever.

Gold is also a good investment when there’s a chance of inflation. (What’s more, investors usually turn to gold when there’s hyperinflation or market crashes, but happily that’s not the case now.) When inflation kicks in, it becomes even more obvious how gold keeps its price. There is a great chance that inflation will come as monetary policies around the world may turn in a stricter direction, which many believe is necessary.

What to expect this year?

Every year there are periods when gold and other precious metals perform stronger. The first quarter of the year and September usually mean good times for gold. It’s also important to see that when FED hikes interest rates, gold and silver start to rise. This was true in the last three years, and there is a good chance for the FED to hike rates again. There is also a great chance of other Western central banks following the US’ lead in this.

All this means that keeping an eye on gold is a great idea this year. As stock market correction is here and inflation may be a thing again, gold can be a great safe haven. It probably won’t be the investment with the highest returns, or with returns as a diversified portfolio has, but it can be a safe and steady investment that can help investors to keep the nominal value of their wealth.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.